INSTANT VIEW: U.S. consumer confidence at 28-year low: U.Mich

NEW YORK (Reuters) - U.S. consumer confidence fell to a 28-year low in May as inflation expectations soared, according to a survey released on Friday that presents a dilemma for the Federal Reserve.

Business activity in the U.S. Midwest contracted in May for the fourth consecutive month but the rate of downturn moderated, a report showed on Friday.

KEY POINTS:

REUTERS/UNIVERSITY OF MICHIGAN: * The Reuters/University of Michigan Surveys of Consumers said the final reading in May for its index of confidence fell to 59.8 from April's 62.6, slightly above the median expectation of 59.5 in a Reuters survey of economists. * May's reading was the lowest since 58.7 in June 1980 but it was slightly higher than the preliminary reading of 59.5 published earlier this month. * However, the improvement was marginal and the report still paints a troubling picture, with one-year inflation expectations surging to 5.2 percent -- the highest since February 1982 -- from 4.8 percent in April.

CHICAGO PMI: * The National Association of Purchasing Management-Chicago business barometer rose to 49.1 in May from 48.3 in April. * A reading below 50 indicates contraction. * The median forecast in a Reuters poll of analysts called for a reading of 48.5. * Many analysts consider the NAPM-Chicago survey a factory report since the region is relatively industrialized, but service sector companies and nonprofits are also polled.

COMMENTS:

JOSHUA SHAPIRO, CHIEF U.S. ECONOMIST, MFR, INC., NEW YORK:

REUTERS/U. MICHIGAN CONSUMER SENTIMENT: "A very weak trend for consumer spending is the most likely scenario in the near to medium term, with debt-laden households facing a weakening labor market and consequent diminution of income growth, along with an increasingly ill housing sector and the sapping influence on discretionary spending from higher energy and food prices."

CHICAGO PMI: "Looking ahead, while export growth looks set to remain solid at least over the near term, an increasingly constrained consumer, deepening woes for the housing sector, and a degree of unwanted inventory accumulation in Q1 will all weigh on manufacturing output, which we expect to remain weak for some time."

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S RATINGS

SERVICES, NEW YORK:

CHICAGO PMI: "It says manufacturing is still sluggish, but we have wait for the national ISM number to come out."

"Prices paid are rising, reflecting high commodity prices. We are seeing a break in them the few days but it won't show up until next month."

REUTERS/U. MICHIGAN CONSUMER SENTIMENTS: "Down below 60 is recession range. Consumers are running scared. These price data are bad for consumers and businesses. We are not going to see the economy getting better any time soon. We are still in the early stages of the recession. The consumers have hung in as well as they have. They are going to be spending the rebate checks in the next months, but how long can they live beyond their means?"

ROBERT LUTTS, CHIEF INVESTMENT OFFICER, CABOT MONEY MANAGEMENT,

SALEM, MASSACHUSETTS: